Everyone has to agree here: grumpy channel partners are no fun for anyone!
In business, all your elements, especially your network of channel partners – distributors, resellers, and retailers – should be content and happy.
Channel incentives are the rewards businesses hand out to their partners for hitting key targets, like smashing sales goals or growing market share. It’s all about showing appreciation and keeping everyone pumped up and motivated.
Just a truth bomb, managing these incentives isn't a piece of cake!
This is why channel incentive management exists.
Today’s agenda?
We’ll understand what channel incentive management (ICM) is at its core, how you can implement it, and the best practices to keep things running smoothly.
Let’s get into the thick of it!
Channel Incentive Management (CIM) is about using smart strategies and systems to reward a web of channel partners, which not only helps optimize your sales channels but also boosts your revenue and rock-solid collaborations.
Rolling out effective incentive programs is the cornerstone.
So, how do you keep everyone engaged? It starts with smart, well-crafted incentives that show your partners you value their contributions.
In a cutthroat market, businesses need every advantage they can get. That’s where partner incentive programs make all the difference. They are a game-changer for all good reasons.
With countless brands out there, unique and attractive incentives make your company the go-to choice for partners.
Valued and rewarded partners are loyal partners. CIM helps you recognize their efforts, building long-term, solid relationships.
Offer the right rewards and watch your partners push your products over the competition. More sales and a bigger market share are the name of the game.
Keep everyone on the same page. CIM ensures partners are working towards the same goals with clear expectations and rewarding outcomes.
Learn what works and ditch what doesn’t. Focus on the most effective incentives for a better return on investment.
Gain better insights into sales and performance. This leads to more accurate forecasting and strategic planning.
Clear rules and rewards mean less confusion and fewer conflicts among partners. Everyone knows the game plan.
Need to boost sales for a new launch or clear out overstock? Targeted incentives can make it happen.
Encourage partners to get trained up. Offer rewards for completing training modules to ensure your products are represented by knowledgeable partners.
These are the bread and butter of partner incentives, rewarding sales reps for hitting targets on volume, margin, product type, or growth. Rewards come in the form of debit cards, gift cards, merchandise points, or travel incentives.
SPIFs are short-term promos rewarding reps based on sales percentages. Ideal for quick wins and targeted growth, these are usually given as reloadable debit cards.
VARs take tech products, add extra features or software, and sell them as ready-to-use solutions. They make implementation a breeze for businesses.
MDFs provide resources to help partners with sales and marketing. This could be anything from educational materials to professional images for ads.
Co-op funding involves sharing your marketing budget with partners to help them meet their goals. It rewards loyalty and drives continued use of your products.
Channel rebates reduce partners' overheads, encouraging them to create demand. They’re usually based on order size or frequency for specific products.
Reward partners for bringing new leads. If the lead is accepted, the partner has a set time to close the deal. Extra points and bonuses drive faster sales.
Reward partners for referring new buyers. Popular rewards include points, gift cards, debit cards, and travel programs.
Also known as behavioral incentives, these provide sales teams with the tools and training they need to close deals more effectively.
These long-term incentives aim to keep partners happy and loyal. They focus on maintaining strong, lasting relationships rather than just growth.
Increase sale value by registering warranties and bundling products with services. This boosts sales and benefits partners.
Incentivize every sales-related activity, from training and demos to relationship and contract management.
Did you know 3 out of every 4 things sold on Earth involve a partner company according to Forrester? That's HUGE. And guess what? If excluding the 25% that sell directly only, then the usage of channel incentives by those selling through 2-step distribution is much higher than 48%.
Basically, your sales team is way bigger than you think – it includes all your awesome channel partners! So, it makes sense to treat them right, right? And the best way to do that starts with building a killer channel incentive program.
Here's how you can get started...
For your incentive program, understand each player's role in the value chain. Who are your suppliers, distributors, and retailers? How do they interact? By mapping out these dependencies, you can ensure that your incentives are relevant and motivating at every step.
Everyone needs to know the game plan. Clear communication is vital. Make sure all parties understand the program's goals, rules, and rewards. Foster an environment where feedback is welcomed. When everyone is on the same page, it's easier to drive towards common objectives.
There's a structure, but also room for improvisation. Your incentive program should be flexible enough to adapt to changing market conditions and partner needs. Be prepared to tweak the program based on what works and what doesn't. Execution is key—ensure that you have the right resources and support in place to roll out the program smoothly.
Generic incentives are like bland music; they don't resonate with everyone. Tailor your rewards to meet the specific needs and desires of your partners. The more relevant and personalized the incentives, the more likely partners are to engage and perform.
It makes everything more efficient and connected. Leverage technology to track performance, manage communications, and distribute rewards. Digital tools can provide real-time data and analytics, helping you to refine and improve your program continuously.
Read more about SaaS-usage based pricing at SaaS Usage-Based Pricing: The Future of Software Monetization.
Running a successful channel incentive management (CIM) program is like orchestrating a symphony. It requires careful planning, clear communication, and continuous fine-tuning.
Here's how you can do it:
Start by defining what you want to achieve. Are you looking to boost sales, increase market share, or improve partner engagement? Clear goals will guide your entire program.
2️⃣Know Your Audience
Understand your partners' motivations and challenges. Tailor your incentives to meet their needs and make them feel valued.
Offer rewards that truly motivate. This could be monetary bonuses, exclusive experiences, or even recognition in front of peers. The key is to make the incentives irresistible.
Make sure your partners know about the program, understand how it works, and see the benefits. Use multiple channels—emails, webinars, and face-to-face meetings—to keep the message fresh and clear.
Equip your partners with the resources they need to succeed. This could include training, marketing materials, and a user-friendly platform to track their progress.
Keep an eye on how the program is performing. Use data to track progress towards your goals and make adjustments as needed. Regularly check in with your partners to get their feedback and insights.
Recognize and reward top performers publicly. This not only motivates them but also inspires others to step up their game.
Continuously refine your program based on what works and what doesn’t. Stay flexible and open to change to keep your partners engaged and motivated.
Extra read on sales rep incentive programs. Check Sales Rep Incentives Programs and Strategies for Different Types of Reps.
In the high-octane world of sales and channel partnerships, you have to have the best setup, to get the most out of your partner network.
Here are some best practices for channel management that you can stick to:
Heard about marketing incentives for customers? Then check out Expert Guide to Incentive Marketing: Types, Ideas, and Growth Strategies
The most straightforward ROI on channel partner incentive programs proof is that 84% of U.S. businesses use non-cash incentives according to the Incentive Federation.
We've established that channel incentives are the key to happy and productive partners, which translates to more sales for you. But here's the thing: partners are like picky eaters – their tastes change!
What motivated them ten years ago might not get them jumping for joy today.
That's why your channel incentive strategy needs to be evolving, constantly adapting to keep your partners excited and hungry for more.
The business world changes fast. Maybe your partners are more interested in selling specific products you want to push, or maybe they'd love some extra training to become your brand champions. A revamp could be just what you need to reignite that partnership fire and boost your sales together.
Wish to know more about sales incentive compensation, check Channel Incentive Management: Strategies, Best Practices, and Insights.
High five!
You've built a sweet incentive program to keep your partner network buzzing. But hold on, we're not done celebrating just yet. Just like you wouldn't hand out a test without grading it, you gotta track how well those incentives are working.
To do that, we need to track some key metrics, basically a report card for your incentive program. These metrics will tell you if your partners are digging the program and, more importantly if it's boosting your sales.
Look, I need to make sure everyone gets this. Here it goes again...
Just like a garden thrives with the right care, your sales funnels flourish when you manage and incentivize your channel partners effectively. We all know by now that channel partners are the power players in your sales strategy.
They're the friendly faces extending your reach and selling your products like champs. But, just like any good relationship, keeping them happy is key.
Channel Incentive Management isn’t just a buzzword, it’s a powerful strategy that keeps your partners motivated, engaged, and ready to drive sales.
When you invest in your partners' success, they become your best allies, and honestly, everyone needs them no matter what!
Channel partners and incentives? That's a recipe for sales success, no doubt! You’d be crazy to ignore that.
It's no surprise that according to Gartner 50% of sales leaders feel the pandemic exposed weaknesses in their sales compensation plans.
It shows that just having a sales comp plan in place isn't enough. As a leader, you have to ensure your plan is up to par with industry standards, fair to everyone and drives the desired results.
If the plan isn't cutting out and doesn't follow sales compensation benchmarks, it won't take long for your team to notice, and that's a quick path to decreased morale and performance.
Alright folks, let's talk about sales compensation benchmarks!
In this article, let’s break down what they are, 15 key benchmarks to consider for your comp plan, and why using them is a total win.
Let's do this!
Simply put, they're basically like your industry's playbook for pay. These metrics give organizations a clear picture of the typical compensation structures used across the board.
Let's see some of the top sales compensation benchmarks
According to the Incentive research foundation, a well-designed incentive programs can boost employee performance by a whopping 44%. That’s something!
Let’s get into how setting the right sales compensation benchmarks can work hand in hand with these programs to supercharge your team’s success.
This is the guaranteed pay your reps get every paycheck, win or lose. Benchmarks help you set a salary that's both competitive and fair.
Commission rates are like mini-bonuses reps earn for closing deals. Benchmarks help you pick commission rates that motivate your reps to hustle and align with what others in your industry are offering.
On top of their base salary and commission, some companies offer bonuses for going above and beyond. Benchmarks can inspire you to design bonus programs that are motivating.
These are the fancy ways you measure your reps' success, like the number of deals they close or how much revenue they bring in. Benchmarks help you set clear expectations that keep your reps focused and laser-targeted on winning.
The bigger the territory, the more running around your reps have to do. Benchmarks can help you adjust compensation based on territory size so it's fair for everyone.
Selling complex stuff can take forever. Benchmarks can help you adjust compensation to account for sales cycle length. Maybe a higher base salary for those extra-long sales cycles to keep your reps happy?
The more experience your reps have, the more they bring to the table (and hopefully the more sales they close). Benchmarks can help you figure out how much more senior reps deserve to earn.
Every industry has its pay standards. Benchmarks help you ensure your reps are getting paid competitively within your field. You wouldn't want your star rep to jump ship to a competitor just because they offer a better paycheck, right?
The cost of living can vary wildly depending on where your reps live. Benchmarks can help you adjust compensation to account for these geographic differences. It wouldn't be fair to pay your rep in Mumbai the same as your rep in a tiny village, would it?
Some companies are all about stability and offering a steady paycheck, while others are more like "go big or go home" with high commissions and the potential to earn a ton. Benchmarks can help you align your compensation plan with your overall company culture.
Investing in training your reps can make them superstars. But if you're spending a ton on training, you might be able to offer a lower base salary. Benchmarks can help you find a sweet spot between training investment and base salary.
Selling rocket science requires more knowledge than selling socks. Benchmarks can help you adjust compensation to reflect the level of expertise your reps need to have.
Startups might offer higher commissions or even a piece of the company (equity) to attract top talent, while huge companies might have more traditional compensation plans. Benchmarks can help you tailor your plan to where your company is at.
It costs money to find new customers. Benchmarks can help you ensure your commissions are high enough to justify the effort it takes to close those deals.
In a super competitive market for sales reps, you might need to offer more money to attract and keep the best of the best. Benchmarks can help you stay in the game when it comes to recruiting top performers.
Learn more about SDR compensation structure, check Unlocking Success: A Comprehensive Guide to SDR Compensation Strategies.
A sneak peek into industry compensation standards…
Target Earnings: The average sales rep aims for a total compensation (OTE) of $115,000. This often breaks down to a 60/40 split between base salary and commission, but structures vary widely by industry and company.
Different field significantly affects earnings. For instance, tech sales reps typically earn more than those in door-to-door sales.
Here's a breakdown by industry median:
SaaS Salespeople focused on Software as a Service (SaaS) have an average base salary of around $51,000, with inside sales reps earning closer to $60,000.
Here's a more detailed look:
To read more about the sales manager compensation plan, check The Top Elements of a High-Impact Sales Manager Compensation Plan.
Using certain benchmarks to set up a sales incentive plan goes a long way and has a long list of perks that come with it.
Let's explore a few of them here…
Imagine offering a compensation plan so good, it attracts the best salespeople in the industry. That's the power of a well-designed plan! Competitive pay with high earning potential makes your company a magnet for top talent.
Want to see your sales skyrocket? Align your compensation plan with your company's goals and industry standards. When salespeople see a clear path to earning more by contributing to the company's success, everyone wins!
Think of sales compensation plans as a way to identify areas for improvement. If your plan isn't attracting the right talent or driving sales the way you want, benchmarks can help you identify tweaks that make a big difference.
Spying (in a good way!) on how top sales organizations structure their compensation plans is a fantastic strategy. You can glean valuable insights and best practices to design a plan that supercharges your team's performance.
A well-crafted compensation plan can nudge salespeople towards focusing on the products and services that bring in the most profit. This improves your overall sales efficiency and keeps your bottom line happy.
If you keep running on the same treadmill at the same speed, you'll eventually plateau, right? The same goes for benchmarks. We gotta keep them relevant and challenging to keep pushing ourselves.
Here are 6 easy steps to make those even better:
In the cutthroat world of sales, every edge counts!
Forget about flying blind, you need to have a guide to be able to create a solid compensation structure. Best Sales compensation benchmarks are what you need handy!
They help you pay competitively, spot where you can improve, and keep your salespeople happy. They even let you see what your competitors are up to, what motivates the top performers, and where you can optimize your comp strategy.
I'm sure these are all the things every employer or leader wants in the end!
A strong compensation strategy can help you build a team that's not just motivated, but ferociously hungry to exceed expectations.
Use sales compensation benchmarks wisely & watch your team evolve from good to great, from great to legendary.
Let's Talk About the Real Struggle!
It’s natural for every business to feel swamped with manual compensation management. But don’t worry, you can turn this around.– welcome in advance!
Are you tired of juggling mountains of data and walking a tightrope with compensation calculations? Kennect is here to help!
Effortlessly automate your incentive programs, engage your employees, and analyze performance – all in one go.
Why struggle in-house when you can simplify with Kennect? Curious? Get ready to see it in action! Book a free demo today!
You hit the nail on the head!
Reaching the top in business is not a solo effort. You can't do it all alone—you need some extra muscle. That's where channel partners come in. They're companies or individuals who team up with you to sell or promote your products.
They've got the connections, you've got the amazing product or service—together, it's a duo for success!
Keep these channel partners happy and treat them right, or they could become your worst investment ever.
If they get frustrated or feel like they're not getting their fair share, they might ditch you and take their connections elsewhere. That's a major hit!
So, how do we keep them happy, engaged, and on their toes? Of course, you need to incentivize them! Give them something worth hustling for.
But coming up with those creative incentive programs can be a real brain drain. But hey, that's why I'm here!
This blog is jam-packed with all sorts of incentive program ideas for channel partners, including the different types, the benefits they bring, and more.
Enough chit-chat—let's get learning!
A company wants to sell its cool new product everywhere, but reaching every single customer would be a huge hassle. That’s when companies smartly join forces with others to reach more customers.
These collaborators, known as channel partners, can be any organization or individual that helps sell or advertise products or services. They can be distributors who get your product to stores, retailers who sell it on shelves, or even BPOs, vendors, agents, etc.
The good part? They're local experts who know their turf, so they can reach the right people for you. Plus, they help you grow your business without blowing your budget. They might even have some fresh ideas to boost your product that you never thought of!
Let’s get into to the details…
Channel partners in Japan contributed to approximately 40% of Zoom’s Japan business in 2020. How cool is that!
Imagine having someone who can help you venture into new markets, tap into an already established network, and bring invaluable expertise and skills. That's exactly what a channel partner brings to the table. hey basically smooth out the entire process, making everything flow easier. Pretty cool, right?
All these benefits and more translate directly into growth for your business. It's a win-win!
Strengthens trust and fosters long-term collaboration.
Enhances brand visibility and credibility through co-branding opportunities.
Promotes knowledgeable representation by motivating partners to pursue training and certification.
Leverages partners' established networks to enter new markets.
Increases market share by incentivizing partners to prioritize and promote your products.
Drives commitment from partners, leading to increased sales and loyalty.
Facilitates easier market entry and customer acquisition by leveraging partners' customer relationships.
Reduces costs through shared marketing and operational efficiencies.
Now we all know how much channel partners can benefit your business, but to make the most of these relationships, you need to give them the right incentives. There are tons of ways to do this, but here are the top 10 incentives that stand out!
These are rewards given to partners to motivate them to sell more products. For example, a tech company might offer a bonus to a reseller for every 100 units sold within a quarter.
Rebates are partial refunds given after a purchase, designed to encourage sales. For instance, a manufacturer might offer a 5% rebate to distributors for reaching a certain sales target.
These discounts are provided to partners who purchase products in large quantities. For example, a supplier could offer a 10% discount on orders over 500 units.
SPIFs are additional bonuses for salespeople who meet or exceed sales targets. For example, a company might offer a $50 bonus for each premium product sold.
Referral program ideas reward partners for bringing in new customers. For instance, a software firm might give a $200 reward to a partner for each new customer they refer.
These are incentives for selling product bundles or extended warranties. For example, a hardware provider might give an extra 2% commission for each bundle that includes an extended warranty.
Providing training and technology support helps partners improve their sales capabilities. For instance, a company might offer free advanced training sessions on their new product line to partners.
These incentives are aimed at keeping partners loyal over time. For example, a business might provide annual bonuses to partners who consistently meet their sales goals.
These funds reward partners for their long-term loyalty and sales performance. For example, a company could set aside a percentage of sales to be paid out at the end of the year to top-performing partners.
Knowing the right types of channel partner commission structure is just the beginning. You need the right strategies to make them work.
Check out these awesome strategies for incentivizing your channel partners. Save these tips and watch your partnerships soar!
This is a classic for a reason. Sell X amount, get Y bonus – simple and effective.
The more they sell, the higher the commission percentage they earn. It's like climbing a sales mountain, with bigger rewards at each peak!
This is a win-win. You team up with your partners for marketing campaigns that raise brand awareness for both of you. Example: joint webinars, or co-branded content etc.
Give your partners something special they can offer their customers. It could be a discount on your product, a free add-on, or early access to new releases. Everyone loves a little exclusivity!
Invest in your partners' success by providing them with top-notch training. This could be workshops, courses, or even certifications. Empowered partners sell better!
A little public praise can go a long way. Recognize top performers with awards, and mention them. It's a great morale booster.
Make your partners' lives easier by providing them with marketing materials tailored to their specific audience.
For partners, you want to lock in, consider longer-term contracts with attractive incentives. Exclusivity deals can also be a motivator.
These are just some ways to put these incentive strategies into action. With the right mix of incentives, you can build a powerful and mutually beneficial partnership that drives sales success!
To make sure you're on the right track, keep these 4 pretty easy checkpoints in mind when you're incentivizing your channel partners.
#1 Work Within Your Capabilities
#2 Diversify Your Incentives
#3 Offer a Competitive Incentive
#4 Review Your Incentives Regularly
Here's an inspiration for you!
The 2022 Channel/Partner Marketing Benchmark Survey, carried out between December 2021 and January 2022, focused heavily on software and technology companies. When asked what activities they provide to support their channel partners, nearly 60% of respondents shared their insights.
Here’s what they had to say:
Having a rock-solid standard and sticking to it is key to excelling in whatever you do.
When you're looking to incentivize one of your most valuable assets—your channel partners—it's all about hitting those key points; you can't afford any slip-ups.
Looking to get the best in business? It begins with sticking to the channel management best practices. Here’s how:
Make your incentive plan easy to understand and follow. The clearer, the better!
Mix in some non-monetary rewards and recognition to keep things exciting and motivating for your partners.
Keep the lines of communication open with your partners. Regularly update on the program’s progress, any changes, and how partners can earn rewards.
Ask your partners what they think about the incentives. Their insights can help you make it even better.
Regularly check how your incentive programs are doing, tweak them based on feedback and data, and always look for ways to make them better.
Once you've rolled out incentives to your partners, it's natural to wonder, "What's next? How do I know if this is working?" Don't worry, it's a common concern, and I'm here to help.
Just follow these and you are good to go!
➤Look at the increase in sales figures directly tied to the incentive program.
➤Gather input from your partners on how they perceive the incentives
➤Monitor customer feedback and satisfaction scores.
➤Measure how many partners stay engaged and continue.
➤Calculate the ROI by comparing the costs of the incentives to the revenue generated.
So what about marketing incentives? Can it help boost your success?
You’re all set now!
Even the coolest product on earth needs a little push to really fly. Without some sweet incentives, your partner pals might not bust a gut to promote it.
In a world where, 75% of commerce hinges on third-party sales, managing these partnerships like a pro is key.
When you set up a solid incentive plan, you not only draw in top-notch partners but also keep them around for the long haul. Also, rewarding and recognizing their hard work doesn’t just boost their motivation—it drives your sales and revenue through the roof!
Take the initiative – invest in a robust partner incentive program and watch your business thrive!
Sales is really the heart and soul of any company, but guess what? Many salespeople often don't get the payouts they deserve. That’s the sad reality!
You could literally ask any salesperson, and they'd probably tell you they've had some kind of mistake with their commission at least once.
Imagine the frustration that leads them to this point: many sales reps actually take matters into their own hands and keep a shadow account. They meticulously track all their incentives, payouts, salaries, and commissions themselves, doing the job HR or admin should be taking care of.
Now, think about your top salespeople spending extra time tracking their earnings in secret spreadsheets instead of doing their job of getting sales.
Well, that's shadow accounting. It devours valuable time and resources and creates a climate of suspicion.
Let's explore why they exist and how to fix this issue.
A shadow account is basically like a personal ledger that salespeople keep to track their earnings. So, instead of relying solely on the company's systems, they keep their records of every deal, commission, and incentive. This approach allows them to double-check and ensure that they receive all the compensation they rightfully deserve.
While the official accounting system tracks transactions and balances, the shadow system works quietly in the background, often for different purposes.
A shadow accounting system is a dynamic and super flexible parallel accounting system that operates alongside an official or primary accounting system within a business or organization. A salesperson could maintain it using Excel, a diary, or another document, and they may track every penny they are entitled to in their way. It's not a fixed system; it totally depends on the person creating it.
To solve a problem, you need to first understand the root cause. So, let's dig deeper!
Why would someone bother creating their makeshift calculation system if they were confident in the company's payroll processes?
The symptom is crystal clear: TRUST ISSUES!
So, why does this lack of trust exist?
Well, for starters, mistakes happen. Organizations, despite their best efforts, sometimes mess up payroll. Maybe it's a miscalculation, an oversight, or just plain old human error. Whatever the case, when employees notice discrepancies in their pay, they get anxious and lose trust in the system that very second.
Shadow accounts. They sound so harmless, right? Wrong! These things are like gremlins in the system, multiplying and causing errors behind the scenes.
Let's rip the bandaid off and expose the MAJOR drawbacks of these sneaky imposters!
Time spent maintaining shadow records is time taken away from core job functions. Sales reps tracking commissions in a separate system might not be focusing on generating new leads. This can lead to missed opportunities for growth and profitability..
If shadow accounting involves storing financial data outside of secure, company-approved systems, it increases the risk of a data breach. This can lead to significant financial losses, reputational damage, and legal repercussions.
One of the biggest issues with shadow accounting is the lack of consistency. Different teams might use varied methods and tools for their shadow records, leading to discrepancies and a lack of standardization. This makes it difficult to get a clear, unified view of the company's financial health.
Shadow accounting can pose significant compliance and regulatory risks. Keeping unofficial records can lead to inaccuracies that might go unnoticed until it’s too late, potentially resulting in fines and penalties, and damage the company's reputation, making it a risky practice from a legal standpoint.
Disagreements between official and shadow numbers can create confusion and distrust among employees. This can lead to finger-pointing, lower morale, and decreased productivity. When multiple sets of books are in play, it’s almost inevitable that conflicts will arise.
Yep, shadow accounts are a total buzzkill!
Companies, leaders, and anyone involved in figuring out compensation and releasing paychecks gotta be on their A-game. You need crystal clear communication about compensable factors, no room for confusion. On top of that, the actual pay calculations need to be squeaky clean, no weird errors that make people question everything.
You need to ensure that no employee ever feels the need to maintain their own shadow account.
All that info was just tip of he iceberg. There's gotta be more to the story.
Let's pop the hood and see what's causing the trouble. We're gonna peel back the layers and see what's really driving people to keep their own pay records in the first place?
Sometimes, mistakes occur in calculating compensation, whether due to complex formulas, incorrect data entry, or software glitches. For instance, an employee might notice discrepancies in their paycheck due to incorrect overtime calculations or bonus payments. The last thing we want is for a salesperson to feel shortchanged, but these errors can push them towards keeping their own records to ensure accuracy.
Compensation calculation errors, even minor ones, can be disheartening for a salesperson who worked hard to achieve their targets.
Have you ever felt like your employees are in the dark about their compensation? Surprise! That mystery breeds suspicion. If your incentive plans are complex and communication is spotty at best, your team is left wondering how much they'll actually take home. This lack of clarity leads to frustration and, you guessed it, shadow accounting. Many companies struggle to make their incentive compensation plans clear and easy to understand.
When doubt sets in employees mind, disengagement follows. Frustrated and unsure, they lose motivation. The worst part? Top performers, the very people you need most, might decide to walk right out the door in search of a clearer path to earning success.
Nobody enjoys waiting for their hard-earned money. When payouts drag on or become unpredictable, trust starts to erode and employee might resort to shadow accounting just to keep track of what they're owed. Streamline your payroll process and ensure timely, consistent payouts.
Sometimes, the very tools used to measure success become a point of contention. If your team feels the goals they're measured against are unfair, unrealistic, or constantly changing, it creates confusion. Confused employees might not trust the official numbers and resort to shadow accounting to track progress based on their own understanding.
Alright, we've figured out why shadow accounting creeps in – These reasons we discussed are pretty common, but there might be others lurking specific to your company. The key is to avoid them at all costs.
Learning: Create a compensation system that's transparent, reliable, and frustration-free. This keeps those shadow accounts firmly in the dark ages, where they belong.
Tick off these points and watch shadow accounts become a distant memory. Your employees will be thanking you (and their spreadsheets can finally retire).
The world of finance. Banks are like the big, established stores you know and trust. Now, shadow banks are more like specialty shops on the financial street. They offer similar services – loans, investments, that kind of thing – but they operate a little differently, outside of the traditional banking system. This means they aren't subject to the same regulations as commercial banks.
Here are some examples of shadow banks:
These firms help companies raise capital and manage investments, but they don't take deposits from the public.
These pools of money invest in a variety of assets with the goal of high returns, often using complex strategies.
These firms invest in companies that are not publicly traded on the stock market.
These funds pool investor money and invest it in short-term debt instruments, like commercial paper.
These companies provide loans to consumers and businesses, often specializing in areas like auto loans or mortgages.
Because they're not as closely watched, they can be a bit risky for the whole financial system. Imagine one of these shadow banks hits a rough patch – their whole house of cards could come tumbling down. And guess what? That mess can drag regular banks and the whole economy down with it.
It's kind of a domino effect, you see? That's why people worry about shadow banks – they can be a ticking time bomb if things go south.
Happy salespeople produce 37% more profit- t's not just a dream—it's achievable!
Just start with the basics
It all boils down to building trust.
Let your salespeople know that their hard work is seen and valued, without ever doubting it. When trust runs deep, there's no need for shadow accounts or second-guessing.
It's about creating an environment where everyone feels appreciated and supported, and that's where the magic happens.
The ball is in your court, you hold the master key to employee happiness and higher ROI.
Hey there, employers!
Remember when you were all in to get that perfect compensation structure sorted for your new hires? You know, the one that just makes everyone's eyes light up with excitement? Yeah, that's the dream.
But hey, reality check, it can feel like you're juggling a dozen balls at once, right? Understanding how to structure employee pay can get tricky at times, especially when terms like 'fixed comp' and 'variable comp' start flying around.
First up, let's understand both of them
This blog is dedicated to helping all of you folks understand the depths of fixed comp and variable comp. By the end of this read, you'll have some solid insights on creating a fair, balanced pay structure.
Let's jump right in!
Understanding the differences between fixed and variable compensation is key to designing an effective pay structure for your employees. Here’s a quick comparison to get you started:
You need that sweet spot where employees feel secure but also motivated to perform well. A good mix of fixed and variable comp keeps everyone happy and engaged.
Imagine compensation is like a delicious pizza. The base salary is the crust – it's the foundation, what keeps everything together. But a pizza wouldn't be very exciting without toppings, right? That's where bonuses, benefits, and other perks come in. They're the cheese, the pepperoni, the veggies – all the good stuff that makes the pizza truly enjoyable.
We'll dissect each topping, one by one, so you understand the whole delicious package!
Within a fixed compensation structure, an employee's total pay is predetermined and remains consistent.
Here's a breakdown of the typical elements found within a fixed compensation structure:
This is the fixed amount of money paid annually. For example, if someone earns a $50,000 annual salary, they receive a consistent paycheck throughout the year.
These are additional perks beyond the salary, like health insurance, retirement plans, and vacation days. For instance, an employee might get medical coverage, a 401(k) plan, and three weeks of paid vacation each year.
Bonuses are extra payments based on performance or company profits. For example, if an employee helps the company exceed its sales targets, they might receive a $5,000 year-end bonus.
Common in sales roles, commission is extra pay based on sales made. For instance, a car salesperson might earn a 5% commission on each car sold, so selling a $20,000 car would earn them an extra $1,000.
Employees receive a portion of the company’s profits. For example, if a company performs well, it might distribute 10% of its profits among employees, giving each employee a share based on their role and tenure.
To paint a clearer picture, let me show you and example of how fixed and variable compensation can blend together in a pay structure.
Now that we've covered fixed and variable compensation and how they work together, let's talk about what influences the base salary, a big part of fixed compensation. This will help you decide how to set the right base salary for your new hire!
HR policies are like your company's playbook, covering everything from hiring to performance reviews. They ensure everyone's on the same page. When it comes to base salaries, these policies set the standards for promotions and evaluations, keeping things fair for everyone.
Company policies shape your company's culture and values. They also influence base salaries by guiding how you structure compensation, reflecting what your company stands for and its priorities.
Designation directly impacts base salaries because different roles have varying levels of responsibility and skill requirements. Clearly defined salary ranges help attract and retain the right talent for each role.
Where a person is based matters for base salaries. Factors like cost of living and market demand vary across locations, so it's important to understand these differences to offer competitive pay that reflects local conditions.
Every industry has its salary norms. If you're in a sector with high demand for certain skills or where profits are booming, you might need to adjust your base salaries to stay competitive and attract top talent.
Neither fixed comp nor variable comp are perfect. They both have their own upsides and downsides.
Let's break down the good, the bad, and everything in between to help you understand the ins and outs of compensation!
Employees know exactly what to expect in their paychecks each month, which can be a major benefit for budgeting and financial planning.
Consistent income leads to less financial stress for employees.
Employees are less likely to prioritize short-term gains over their core responsibilities.
Fixed salaries are easier for companies to calculate and manage.
Fixed salaries may not incentivize employees to go above and beyond their basic duties.
Companies may have less control over payroll costs during slow periods.
Employees have a fixed ceiling on their income, regardless of performance.
Fixed salaries are a double-edged sword. The good news? They're predictable, but the catch is it might not keep everyone constantly pumped.
It can be tough to keep that fire for exceeding goals burning bright without some extra fuel (Variable comp).
Variable pay can motivate employees to achieve better results and contribute more to the company's success.
Ties employee compensation directly to company goals, fostering a results-oriented culture.
Employees can significantly increase their income with strong performance.
Companies only pay out bonuses or commissions when performance targets are met.
Variable pay can lead to unpredictable income streams, making budgeting difficult.
Employees may feel pressure to constantly perform at a high level.
Variable pay structures can create competition among colleagues, hindering teamwork.
Calculating and managing variable pay can be more time-consuming for companies.
Alright, alright, variable pay isn't perfect either. It can turn into a pressure cooker, making everyone frantically chase their goals just to get the bonus.
It's like everyone's got their eye on the prize, but nobody's having fun on the ride.
As an employer, you still need to make sure the work itself is engaging, and there are growth opportunities.
Only 32% of workers feel like they’re paid fairly, according to a new Gartner survey. Yikes! This shows why it's so important to get compensation right so your team doesn’t end up feeling the same way.
Now, I get it deciding on a pay structure can be overwhelming with so many factors to consider. It's easy to lose track and get confused. There's a ton to think about, from salaries and benefits to keeping things fair and competitive.
To help you out, here’s a straightforward 10-step strategy to create an ideal compensation structure for your organization!
Start by clarifying your goals. Are you aiming to attract top talent, retain your current workforce, or incentivize specific behaviors? Understanding your objectives will guide the rest of your compensation strategy.
Conduct thorough research to understand the prevailing compensation trends in your industry and region. This includes benchmarking salaries, benefits, and incentives offered by competitors and similar organizations.
Recognize that different roles within your organization may require different compensation approaches. Segment your workforce based on factors like job function, experience level, and performance.
Strike a balance between fixed and variable compensation. Fixed components provide stability and security, while variable components offer incentives for performance and achievement.
Clearly define the metrics and KPIs that will drive variable compensation. These should be tied to individual, team, and organizational goals, ensuring alignment with broader objectives.
Be transparent about your compensation structure and how it aligns with organizational goals. Communicate clearly with employees about how their pay is determined and the opportunities for advancement.
Recognize that compensation needs may evolve. Build flexibility into your structure to accommodate changes in market conditions, business priorities, and employee preferences.
Ensure that your compensation structure complies with relevant laws and regulations, including minimum wage requirements, overtime rules, and anti-discrimination laws.
Continuously monitor and evaluate the effectiveness of your compensation structure. Solicit feedback from employees and make adjustments as needed to ensure it remains competitive and aligned with your objectives.
Take a holistic view of compensation, considering not just salary but also benefits, perks, and opportunities for development and advancement. A comprehensive approach will help attract, retain, and motivate top talent.
Stick to these steps when creating a pay structure, and voila! You'll have a successful plan that makes your employees more satisfied than ever!
Basically, linking pay to performance is performance-linked pay.
This means high performers get rewarded with salary increases. It's about how one rocks those pre-agreed objectives.
Now, the real tea: what makes these performance-linked pay strategies super successful? Let’s crack the code.
Now, to make this whole setup work smoothly, there's gotta be a solid structure in place. That means you need clear criteria for what "good performance" actually looks like. You can't just say, "Do well, and we'll give you more money." You need specific goals or metrics to aim for.
You need a fair way to appraise performance. To make it all work, you need to have clear targets, fair assessments, and ongoing support for everyone involved.
It starts with setting clear goals and expectations. It's like telling someone, "Here's what we need you to achieve."
Then, you need a way to measure how well someone is doing. Imagine it like keeping score in a game, so you know who's winning.
Regular feedback is key. It's like having a coach who tells you what you're doing well and where you can improve.
The evaluation process should be fair. You wouldn't want someone to judge you unfairly, right?
The rewards should match the goals. It's like getting a prize for doing something great.
There should be room to grow and improve. It's about getting better over time.
Everyone should know how it all works. It's like having an open book, so there are no surprises.
Success is not just about the individual; it's also about how the team supports each other.
It's not a set-it-and-forget-it thing. You should always look at how things are going and make changes if needed.
And lastly, celebrate achievements! It's important to recognize when someone does a great job.
Alright, that's the deal. The magic formula isn't just a paycheck, it's the combo of fixed comp and variable comp that keeps your crew happy and motivated.
Now, onto your pain point!
Managing these compensation structures can be exhausting, especially when you're dealing with mountains of data. It's like walking a tightrope every month, with tons of calculations that can easily get messed up when done manually.
That's where Kennect steps in to make your life easier. With Kennect, everything becomes effortless. It automates, engages, and analyzes, all in one go.
Why struggle in-house when you can simplify with Kennect? Curious? Get Ready to see it in action! Book a demo!
Isn't it ironic how employees are the backbone of a company, yet they seem to have a love-hate relationship with their compensation plans?— only 58% of people are satisfied with their salary, according to Ipsos' Consumer Tracker Survey.
On this note, let’s start this…
Imagine, you're about to bring some fresh talent onto your team.
That's exciting stuff. But with the thrill of hiring someone new comes the not-so-thrilling task of figuring out how much to pay them.
The pressure's on, right? You don't want to lowball them and risk losing a great hire, but you also need to make sure the salary aligns with your budget.
The key to navigating this whole thing? Knowing what factors to consider when setting a defendable pay structure.
That's what we're going to crack open today.
Today's blog agenda is to shed light on top compensable factors, why they matter, and how you can determine these factors.
Let's get the ball rolling!
When it comes to figuring out how much to pay someone, employers don't just pull a number out of thin air. They consider a set of factors that reflect the value and importance of the job itself. These factors are called compensable factors.
Compensable factors are basically the criteria used to determine how much an employee should be paid. Simply put, compensable factors are the base on which the compensation structure stands strong.
By considering these factors, employers can ensure they're offering competitive, fair salaries while maintaining the budget.
Compensable factors are like different puzzle pieces employers use to build a fair and competitive compensation picture.
Here's how each one helps decide what a position is worth:
The more specialized skills and experience someone has, the more valuable they are to the company. Employers are willing to pay more for someone who can hit the ground running and contribute right away.
Not all jobs are created equal. Some require independent decision-making and problem-solving, while others are more routine. More complex jobs typically warrant higher compensation due to the increased skill and mental effort needed.
Certain positions require specific degrees, certifications, or licenses. The higher the level of education needed, the more specialized the knowledge, and potentially, the higher the compensation.
This considers the level of accountability for tasks, projects, or people. Does one oversee others, manage projects, or take ownership of important outcomes? Greater levels of responsibility often translate to higher compensation.
Some mistakes are minor inconveniences, while others can cause significant financial loss or safety hazards. Jobs with a higher potential impact of errors typically come with higher compensation to reflect the risk involved.
This might come as a shocker, but up to 43% of workers think they’re underpaid. And in 2021, 64% of U.S. workers left their jobs because of low pay and no chances for advancement.
These numbers are pretty discouraging for everyone involved.
Employers always try to be fair and do right by their employees, and employees have high hopes from their employers. It's like a loop that keeps getting stuck.
But sometimes, things just don’t add up.
The stats show that unfair pay is the biggest reason for people being unhappy at work and leaving their jobs.
The only way out here is to follow compensable factors precisely.
Compensable factors are like a bridge. They connect what employers value in a role (skills, experience, responsibility) with what motivates employees (fair pay, recognition of their worth).
When this bridge is strong, everyone wins. Employers get a happy, productive workforce, and employees feel valued and secure in their careers.
That's why understanding and abiding by these compensable factors are more important now than ever!
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First, figure out what’s important to your company and each specific job. Consider what skills, experience, and qualities make someone successful in these roles. For example, is technical expertise crucial? Or maybe leadership skills? Define these criteria clearly so everyone knows what matters most.
Next, rank these criteria based on their importance. Some factors will be more critical than others. For instance, if you're hiring for a tech position, coding skills might be at the top of the list, whereas for a managerial role, leadership and communication might be more important. This helps in understanding what should be weighed more heavily when determining pay.
Now, take these prioritized criteria and align them with your job descriptions. Make sure each job description highlights the key skills and qualities you’ve identified. This ensures a clear connection between what’s needed for the job and how compensation is determined.
Lastly, don’t just set it and forget it. Regularly review and update your job descriptions and compensable factors. The job market and your company’s needs can change, so it’s important to keep everything up-to-date to ensure fairness and relevance in your compensation structure.
By following these steps, you can create a compensation system that is fair, competitive, and aligned with the true value each role brings to your company.
Just a heads-up:
Compensable factors are great for setting pay structures, no doubt. But like any good coin, it's got two sides. Let's dive into both sides and see what the deal is!
Compensable factors provide a structured way to evaluate jobs based on specific criteria like skills, experience, and responsibility. This reduces bias and ensures the promotion of internal equity within the organization.
By clearly defining the factors that influence compensation, employees understand what's valued in their role and how they can progress to higher pay. This transparency can boost morale and job satisfaction.
The framework can be applied to many jobs, even new ones. By breaking down the job into its core components, it's easier to assign a fair value compared to similar positions.
By considering external market data for similar positions, companies can ensure they're offering competitive compensation to attract and retain top talent.
While the factors themselves may be objective (skills, experience), assigning a value to each factor can involve some judgment. This can lead to unintentional bias depending on who's conducting the evaluation.
Compensable factors might not capture all aspects of a job that contribute to its value. For example, soft skills or the impact a particular role has on the company's success might be difficult to quantify.
Developing and maintaining a fair compensable factor system can be complex and time-consuming, especially for larger organizations with many job types.
If employees perceive the system as unfair or if their compensation doesn't reflect their contributions, it can lead to frustration and decreased morale.
There's always room for improvement, right? While compensable factors are a great tool, they do have their limitations. The key is to weigh both sides before you go all in on this pay structure thing.
So, we've been geeking out on compensable factors, but all that talk can get confusing fast. Whether you're an employee or an employer understanding the compensation vocabulary is key.
Let's break down some common compensation terms together.
Key elements of a job that determine its pay, like skills, responsibilities, and working conditions.
A tool that maps out pay levels for different roles based on various factors.
The educational attainment required for a job, like a bachelor's or master's degree.
The core tasks and obligations that a job entails.
Refers to employees whose pay is below the minimum of the salary range for their position.
The ranking of jobs within an organization is based on their value and responsibilities.
A specific role with defined duties and responsibilities within an organization.
The process of examining a job to identify its key components and requirements.
A detailed outline of a job's duties, responsibilities, and qualifications.
Assessing a job's worth to determine its appropriate pay level.
A systematic approach for evaluating and comparing jobs within an organization.
Numerical values are assigned to different compensable factors to rate a job's value.
A group of jobs that have similar duties, responsibilities, and qualifications.
Additional compensation is awarded based on performance.
The basic qualifications needed to be considered for a job.
A level within a pay scale that determines the range of pay for jobs at that level.
An individual employee's role within the organization is often synonymous with "job."
A division of a salary range into four equal parts to analyze pay distribution.
Changing a job’s classification is often due to changes in duties or responsibilities.
Refers to employees whose pay is above the maximum of the salary range for their position.
The span between the minimum and maximum pay for a job or pay grade.
Information collected from various sources to determine market pay rates for jobs.
The average salary for a job is based on what other employers are paying for similar roles.
The million-dollar question: So, when was the last time you reviewed your company's compensation strategy? Are you sure you're striking all the right chords with your employees? think again!
Compensable factors are like salt to a dish – they enhance, improve, and bring out the best flavors. No matter how appealing the dish might seem, without salt, it’s incomplete. Similarly, in an organization where there is everything but a fair compensation structure, employees will quickly become dissatisfied, disengaged, and unproductive.
Imagine an organization where the team feels undervalued and unhappy with their pay structure. How can such an organization expect to make its customers happy? Dissatisfaction within the team inevitably leads to declining sales and, ultimately, a failing business.
So, the next time you're sitting down to create or revise your pay structure, don't forget the main ingredient: compensable factors.
Remember, just like a dish needs the right amount of salt, your organization needs the right compensation strategy to keep employees happy and satisfied.
It's your turn to make the call.
